Salaries in Latvia Will Continue to Grow Faster than Inflation — Analysts' Forecast 0 11

Bonuses Will Be Limited, No Performance Bonuses Will Be Paid

Senior economist at Swedbank Agnese Buceniece stated that salary growth in 2026 will continue to slow down and will be around 7%.

According to her, the tight labor market will help maintain the growth rate. The increase in the minimum wage will be modest — from 740 to 780 euros, which means that the minimum wage will not be a significant factor in the growth of the average salary in 2026. The growth rate of the average salary will also be affected by austerity measures in the public sector, as well as the limited ability of companies to increase wages, considering the risks to competitiveness and the reduced profitability of enterprises in recent years.

At the same time, Buceniece predicts that salaries in the private sector will grow faster than in the public sector. According to the budget law approved by the Saeima, no salary increases in the public sector are planned for 2026. In addition, cash bonuses will be limited, and performance bonuses will not be paid in 2026. This will not affect only state security institutions.

In her assessment, budget expenditures on wages will increase by 3% next year, while in 2025, the growth could have been 6.8%. Salaries in the education sector are likely to grow faster than in the public sector as a whole. Although the minimum salaries for teachers will remain at the same level next year, average salaries in the sector will rise due to the implementation of a new funding model "Program in School," for which 45 million euros are allocated in the budget.

Salary growth in construction is expected to slow down, as the industry has not reached an agreement on raising the minimum wage, which will still be 1050 euros. However, unlike in 2025, this amount will apply to all categories of workers without exceptions, Buceniece added.

She also noted that the Saeima approved amendments in the first reading, providing for a significant reduction in the minimum overtime pay rate — from 100% to 50%.

"There are still discussions ahead. If the current proposal is approved, it may further limit salary growth next year," Buceniece said.

Growth Will Slow, Rate Will Remain High

Macroeconomic expert at SEB bank Dainis Gashpuitis noted in a conversation with LETA that salary growth in 2026 will continue to slow down, but the rate will remain high, which will continue to pose challenges for the competitiveness and profits of companies.

According to his forecast, the average salary in 2026 may increase by slightly more than 7%.

"The rate will remain high, outpacing inflation, which means further growth in average purchasing power," he said.

At the same time, Gashpuitis noted that in several sectors, it is becoming increasingly difficult to maintain the current pace of salary growth, but a supporting factor is the declining inflation.

"Typically, this process occurs unevenly across sectors, enterprises, and even teams, so individual prospects may differ from the overall picture. No sector is expected to see no salary increase. The most significant changes may occur in low-wage jobs, as demand may sharply increase in them, for example, in construction and manufacturing," Gashpuitis said.

He pointed out that the overall growth rate will also be restrained by the limitation on salary increases in the public sector, so growth in the private sector will be more rapid. However, on the other hand, the expected recovery of the economy and labor market means increased opportunities for workers and growing challenges for employers in retaining staff motivation.

Salaries Are Growing Faster than Labor Productivity

Economist at Luminor Bank Peteris Strautins stated to LETA that since 2013, the wage fund in Latvia has been growing annually faster than the gross domestic product (GDP) in monetary terms, except for 2021.

He emphasized that the fund of officially declared wages is one of the few indicators in the economy that is known with absolute accuracy, while almost all others — production, trade, exports — are more or less accurate estimates.

"The rapid growth of salaries causes constant concern among analysts because salaries are growing faster than labor productivity, which harms competitiveness. However, export dynamics during periods of more or less favorable market conditions, like now, do not indicate serious problems with competitiveness. A natural question arises — is the estimate of productivity growth underestimated, and thus GDP?" Strautins noted.

He also indicated that salary growth should continue to slow down next year — this process has been ongoing since 2023, when salaries increased by 12%. Next year, a growth of about 7% is expected after an increase of 8% in 2025.